Trevor J. Mohr, an Associate at Wilbraham, Lawler & Buba in Philadelphia, has published this interesting paper titled “Note, From the Garage to the Internet Superhighway: Tax Consequences For Individual eBay Users and IRS Policy Towards the Online Marketplace.” Below is the conclusion thanks to the TaxProf blog.
Congress and the IRS need more insight into the use of e-commerce, and current tactics employed by the IRS should be updated to reflect the change in social norms and technological advancement. Failure to do so will only lead to an increased tax gap and a heavier burden on the majority of the tax base who honestly report income and pay the requisite taxes. E-commerce has emerged as an integral function of modern business practice, yet the Code has not been modified to reflect this change. Therefore, online businesses, as well as individual vendors and purchasers, are able to avoid most applicable regulations and federal income taxation requirements with little risk of getting caught.
There are several simple solutions to the current problem, but it appears that our elected officials and appointed members of the Treasury Department are not thinking ahead of the curve to combat the loopholes technology created for online transactions. IRS Forms W-9 and 1099 should be a standard requirement for those conducting activities for profit on sites like eBay. In addition, both eBay and its users should be held responsible for the current problem they created. Although the IRS should offer more assistance to users and eBay in carrying out their responsibilities, the agency can only be stretched so far. Online traders should be more aware of their legal responsibility to pay taxes on income derived from such sales, and eBay Inc. should uphold its corporate and social responsibilities by combating the problem. eBay claims it has no responsibility because it is merely the trading platform, but that does not negate the fact that it derives income from each and every transaction. For this reason, it should be regulated and forced to assist the IRS in combating the current tax gap arising from such unreported activity. Hopefully, the law will soon catch up with technology, but until such change occurs, eBay users will continue to sidestep federal income tax reporting requirements and benefit from the burden the rest of us share.